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Saturday, 11 February 2017

Landmark Judgment on Two-Tier Arbitration

(1) Whether a settlement of disputes or differences through a two-tier arbitrationprocedure as provided for in Clause 14 of the contract between the parties ispermissible under the laws of India? There was wide support for the view that parties were free toagree that the award may be appealed before another arbitraltribunal (of second instance), and that the model law should notexclude such practice although it was not used in all countries.However, the Working Group was agreed that there was no need toinclude in the model law a provision recognizing such practice. It wasnoted, however, that this conclusion might have to be reconsidered in thelight of the ultimate contents of the model law, and in particular itschapter on means of recourse against an award.” [Emphasis supplied byus].This view also throws open the issue of party autonomy, which we will advert toa little later. But for the present, we may also refer to the Handbook of5 New York, 16-26 February, 1982, A.CN.9/216 (23rd March 1982)Arbitration Practice6in which a reference is made to a two-tier system ofarbitration particularly in commodity trade in the following words:“…..Fundamental and ancient feature of commodity trade arbitration isthe two tier system whereby the first arbitration is held speedily andrelatively informally and results in the issuance of an award, which,subject to time limits, can be appealed by a dissatisfied party to a board ofappeal of the relevant association. This gives a party two bites at thecherry and the arbitral process is not deemed to be concluded until theboard of appeal has issued its final award…….In two tier systems, theawards of the tribunal, sole arbitrator or umpire are usually called awardsof arbitration, to distinguish them from appeal awards issued by boards ofappeal.”Party autonomy is virtually the backbone of arbitrations. This Court hasexpressed this view in quite a few decisions. In two significant passages inBharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.26this Court dealt with party autonomy from the point of view of the contractingparties and its importance in commercial contracts. In paragraph 5 of the Report,it was observed:“Party autonomy being the brooding and guiding spirit inarbitration, the parties are free to agree on application of three differentlaws governing their entire contract — (1) proper law of contract, (2)proper law of arbitration agreement, and (3) proper law of the conduct ofarbitration, which is popularly and in legal parlance known as “curiallaw”. The interplay and application of these different laws to anarbitration has been succinctly explained by this Court in SumitomoHeavy Industries Ltd. v. ONGC Ltd.,27 which is one of the earliestdecisions in that direction and which has been consistently followed in all25 (1995) 1 SCC 371 decided under the Indian Arbitration Act, 194026 (2016) 4 SCC126, Hon'ble Judges/Coram: Anil R. Dave, Kurian Joseph and Amitava Roy,JJ.27 (1998) 1 SCC 305the subsequent decisions including the recent Reliance Industries Ltd. v.Union of India (2014) 7 SCC 603.” [Emphasis supplied by us].Later in paragraph 10 of the Report, it was held:“In the matter of interpretation, the court has to make different approachesdepending upon the instrument falling for interpretation. Legislativedrafting is made by experts and is subjected to scrutiny at different stagesbefore it takes final shape of an Act, Rule or Regulation. There is anothercategory of drafting by lawmen or document writers who areprofessionally qualified and experienced in the field like drafting deeds,treaties, settlements in court, etc. And then there is the third category ofdocuments made by laymen who have no knowledge of law or expertisein the field. The legal quality or perfection of the document iscomparatively low in the third category, high in second and higher in first.No doubt, in the process of interpretation in the first category, the courtsdo make an attempt to gather the purpose of the legislation, its contextand text. In the second category also, the text as well as the purpose iscertainly important, and in the third category of documents like wills, it issimply intention alone of the executor that is relevant. In the case beforeus, being a contract executed between the two parties, the courtcannot adopt an approach for interpreting a statute. The terms of thecontract will have to be understood in the way the parties wanted andintended them to be.In that context, particularly in agreements ofarbitration, where party autonomy is the grund norm, how the partiesworked out the agreement, is one of the indicators to decipher theintention, apart from the plain or grammatical meaning of the expressionsand the use of the expressions at the proper places in the agreement.”[Emphasis supplied by us].37. In Union of India v. Uttar Pradesh State Bridge Corporation Ltd.(2015) 2 SCC 52 thisCourt accepted the view O.P. Malhotra on the Law and Practice of Arbitration and Conciliation" (3rd Edn. revisedby Ms. Indu Malhotra, Senior Advocate) that the A&C Act has four foundational pillars and thenobserved in paragraph 16 of the Report that:“First and paramount principle of the first pillar is "fair, speedy andinexpensive trial by an Arbitral Tribunal". Unnecessary delay or expense